from the uh-oh-universal dept

Well, well, well. A few years back, we noted that Eminem's publisher was upset about the royalty cut they were getting from sales on iTunes, and they eventually sued both Apple and Universal Music over this (though, I'm still confused why Apple is involved). The issue is a contractual one: as is standard in lots of recording industry deals, musicians make very little money from each album sold. However, when their music is "licensed" for other things -- such as a commercial, movie or video game, they make a much larger percentage. The reasoning, of course, is that there are a lot more "costs" that go into making and selling a CD, which the label is taking on.

But here's where it gets tricky: what is a sale via iTunes? Is that a "sale" like a CD (meaning a small percentage royalty)? Or is it a "license" like for a movie (meaning a much bigger royalty)? Conceptually, you can make a reasonable argument for either side. After all, from the consumers' perspective, it's very much like buying a CD. But... from a technological perspective, it's really a lot more like licensing, since you don't have the same production, physical goods, shipping and distribution costs. A jury originally sided with Universal Music, saying that it's really just like a CD sale, and thus, the lower royalties should apply.

However, the 9th circuit appeals court has just ruled the opposite way, saying that the contract is "unambiguous" that iTunes sales count as a license, for which the higher royalties apply:

This could have a major impact on how much Universal has to pay out to musicians for iTunes sales. Of course, Universal Music is downplaying the ruling, saying that it's unique to Eminem's contract, and that the company plans to fight the ruling. However, Universal Music (and others, potentially) may be in bigger trouble than they care to admit over this ruling. There are other, similar cases underway as well. While I'm sure its more recent contracts are quite specific on this point, for large segments of the back catalog, Universal could be looking at actually having to pay out significantly more in royalties. Of course that assumes they have accurate records somewhere -- which certainly is no given.

Reader Comments

Some sanity

As much as I hate Eminem and his style of "music" in general, it's refreshing to see a little sanity coming from a court for once. A download DOES NOT in any way equate to a physical CD no matter how much the labels would like to convince the world it does.

Just goes to show further how crooked the industry is. They whine to the governments, using "the poor artists" as an excuse to get bad legislation passed, which they then turn around and use to shit on everyone with, artists included. It's never been about the artists, only what's in their own damn wallets. No one has ever stolen more from the artists than the labels themselves through their deceitful contracts and crooked accounting.

Re: Some sanity

you should really actually listen to Eminem before saying that you dislike him, as he is one of if not the most talented artist that has ever rocked the music world. He is truely a lyrical genious, ( You need to put down your hatrid for the vulger language, and actually listen to what he is saying to truely comprehend.) But of course, that probably wont matter to you, as you will continue with your mental block and refuse that such vulger language could possibly have any worth. Is that single minded or simple minded? Hmm oh well I guess it dont matter now does it..

Re: Re: Some sanity

An A+ to you for sidestepping the point of my comment and choosing to attack my opinion. Looks like you just read the first 6 words and started typing. Obviously you haven't lived long enough yet to learn that arguing opinions is a no-win situation or what happens when you assume.

My reasons for disliking Eminem have nothing to do with his lyrics or vulgar language. Some music I like can be considered equally vulgar and has been under attack from parents, politicians, & religious groups long before rap even existed. I just hate rap, plain and simple (I guess you missed the part where I said "and his style of "music" in general", which began with the 7th word). Music, by my definition, is a combination of instrumental notes and a melody, not talking to a beat. Anybody can do that and to my ears it's just annoying noise.

"as he is one of if not the most talented artist that has ever rocked the music world"
- This is laughable. Want to witness some REAL modern musical talent watch Within Temptation - Black Symphony, or pop in any Epica CD.

"He is truely a lyrical genious"
- How so? Because he's good at rhyming words? He's a far cry from Neil Peart or Roger Waters who both had vast imaginations and could tell a story better than anyone, all while rhyming their words as well.

Well, that's all the time I have for you unless you want to get back on topic and talk about the article and the court ruling. If you want to further argue musical tastes I suggest you find someone else on a music blog or forum somewhere.

Re: Re: Re: Some sanity

A+ to you to you blankity blankin' blank ***kers
Judas Priest were the best blankity blank rockers
Even my 65 year old grade twelve engrish teacher
Said that blankity blank blank blank could be a preacher
Yet if he wrote a poem for her along the lines of the ripper
She would gladly become a blankity blank blank stripper.

To help you get by all the cursing, and truly understand what I am versing

Although my teacher didn't know 'em, she said "The Ripper" was a fantastic poem

Too bad, so sad, that youngsters such as the one atop
will never understand that, and become another flop

If you need to curse and swear to articulate, how can you become anything more than an ejaculate?

Pardon the pun, from the line just above
It's all in fun, and fair for war and love

Re: Re: Re: Re: Some sanity

Now that's classic!
Wanna be a star? Just contact me at:
blankityblankinblank at interscope.com
with an answer and we'll have the limos waiting outside your door. We'll give you $1mil up front and all you have to do is give us complete control of your works and 99% of sales until we recoup that $1mil. If no one buys, you get nothing and we'll haunt you for the rest of your life...
Deal?

Why this is a big win for artists as well as songwriters and publishers

This is a big win for my artist, publisher and and songwriter clients!

It not only may impact artist earnings (royalties vs. 50% of net receipts, not to mention approval rights) but also publishing royalties: If the download is not deemed to be a sale by the label, then the publisher has the right to receive a full mechanical royalty rate directly from iTunes, not a reduced rate through the label. (Record companies apply so-called "controlled composition" provisions contained in artist contracts in order to reduce the mechanical royalties payable to publishers, but the labels do not have the right to assign such controlled composition provisions to their licensees such as iTunes.)

Smells like spam to me

Yeah, I think that's what your post is all about - promoting your business, and nothing more. The first line is your advertisement, and the legal blather that follows is just filler. Please go away. And stay away.

Re: Re: Smells like spam to me

But stating that a business which sells licenses, can call a sale "license revenue," and not be included as sales, I can see where "Audit trix" comes from.

"I ain't nothing but a simple man
Call me a redneck, I reckon that I am
But there's things goin' on that make me mad down to the core
I have to work like a dog to make ends meet
There's crooked politicians and crime in the street
And I'm madder than hell and I ain't gonna take it no more"
Simple Man
Charlie Daniels

Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

There are big differences between sales and license income. I won't go into all of the differences, but a big one is the record label takes no financial risk on license transactions, unlike CD sales and 360-participations, which require the record company to front costs.

Re: Re: Re: Re: Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

Re: Re: Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

I wish I had time to respond in so much detail to your question, but you can easily research the differences between licensing and selling products in a business administration class or on the internet. I described the #1 difference above.

Re: Re: Re: Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

If you are in the business of selling licenses, when you sell one, it is a sale.
The labels can deem it to be whatever they want.

It is their choice whether or not to give me the product, as well as the license, on workable medium or just the license written on paper.

If your audit reports are written on gold leaf sheets, just plain paper, or e-mailed to client, it is your choice(and maybe clients). I don't need to hear about how much more it costs to print them on gold leaf.

You sold client your services. You made a sale. There is no difference. A contract may require you to break them down into the different types of sales, but they are still sales.

Funny thing that. You sell your IP once to others who can do whatever they want with it, while telling them they have a right to every copy produced of their own IP.

If I was working for the musician, rather than the label, I would be asking which portion of physical sales are for the physical product and which portion is the license. Then I would be having the artist paid accordingly.

If an album retails for $19.99 and the artist gets 1% of physical sales and 50% of license sales...

Since a license is @ $0.99 and an album generally has @ 10 songs on it...

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"If I was working for the musician, rather than the label, I would be asking which portion of physical sales are for the physical product and which portion is the license. Then I would be having the artist paid accordingly.

If an album retails for $19.99 and the artist gets 1% of physical sales and 50% of license sales...

Since a license is @ $0.99 and an album generally has @ 10 songs on it...

$19.99 = $10.09 for medium and $9.90 for licenses

Artist should be getting $5.05/physical album sold."

Don't forget! You heard that here first.
Since I am increasing the artists earnings by 2 525% (actual may be less, this is for my scenario above), I am willing to accept 10%, for my IP, of all retro-active pay owing, to all, by all labels. They may freely use it for future.

Re: Re: Re: Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

What product(s) do the labels sell?
They sell limited licenses for recordings of songs. Just because that license is on a CD, it does not make them a seller of CDs.

Does Microsoft sell CDs, or limited software licenses?

How can both be sellers of CDs, but aren't competitors? Why the price discrepancy? How come the labels haven't put MS out of business? Labels sell CDs for $20 as opposed to MSs' $700.

Are the labels CD sales declining because MS is selling more CDs? Will i-Tunes sales decrease if MS starts selling 7/Office as downloads(they will both be selling downloads)?
If I sell photo albums on CD, am I also in the business of selling CDs? How will this affect the labels CD sales?

$Million question.
If, in addition to the CDs, I print the photo albums on photo paper, what business am I in?
A) CD sales
B) Photo paper sales
C) Photo ink sales
D) Photo album sales
E) All of the above

If MS starts shipping their software on flash sticks, have they changed their main operations? DVDs? Are they now flash stick/DVD sellers, or do they still sell software? Should they change their name so people don't get confused? People will be looking to buy a CD from them and yet they will get a DVD, not the product they were looking for at all.
Are they still competitors of the labels for CD sales?

The business admin class I took did not cover/explain these questions. Did yours? If you have a link from a reliable source...

Trix are for kids.
The labels, in my lifetime, have sold the same product over and over again. A limited license, recorded on different mediums.

Re: Re: Why this is a big win for artists as well as songwriters and publishers

Hi Karl,

Songwriters are paid mechanical royalties by publishers. Publishers seek to collect mechanical royalties from the companies that distribute copies of their works (e.g., record companies distributing CDs and iTunes distributing downloads). Publishers license and collect mechanical royalties either directly of through an agent on their behalf (e.g., the Harry Fox Agency in the USA).

However, in the USA, but not in most other countries, iTunes and the record companies agreed that the record companies would cover iTunes mechanical royalty liabilities to publishers for downloads. The problem with this is, publishers didn't agree to waive their right to get paid direct from iTunes. And why would you, if you were a publisher or songwriter? Why would you want to have to wait for a record company to receive reports from iTunes and take months or years to turn around and pay you at reduced rates in many cases? That isn't fair. But whether you think it is fair or not to let the record companies get their fingers into this income stream, record companies do not normally have the right to grant mechanical licenses to any third party - iTunes or otherwise - on behalf of third party publishers.

One appeals win doesn't mean everything will change. UMG is trying to say that Eminem's case is unique, although it isn't. The legal battles will continue.

Nevertheless, what is changing is that iTunes is moving to streaming, and it is obliged to license and pay streaming royalties to the publishers directly (or through the publisher's agents such as HFA) - not through the record companies. This will mean more money for publishers and songwriters, who typically split mechanical royalties, and this cost will come out of the pockets of Apple and/or the record companies, ultimately.

These changes will also mean more money for artists, as record companies report streaming income as licensing income, unlike downloads, which they report as sales. Said another way, most artists currently get 50% of streaming income, but only a small fraction of download income, so a shift to streaming will benefit artists, in terms of the their percent splits with the record companies.

Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

Wrong costumers will foot the bill as always.

Probably not, actually. iTunes (and other online retailers like Amazon) have wanted to drop their prices several times. It's always been the labels that have been against it.

This ruling will take some of the bargaining power out of their hands. It's likely that this will positively effect consumers. If they're effected at all, that is.

Songwriting should be work for hire not protected by copyright, what is a songwriter that doesn't perform anything and don't bother to build a fan base and expand his market?

A composer like Beethoven? A musical team like Gilbert and Sullivan?

Some people are excellent songwriters but terrible performers - and vice versa. Both sides of the equation need to be compensated. Could this work under a "work for hire" situation? Maybe, and there are some times when it does (studio artists or backup singers for performers, jingle writing for composers, etc).

But the music industry is mainly set up as a "spec" system, where nobody gets paid until the music is sold. Blaming songwriters for this is a lot like blaming salesmen because they work on commission.

But think of it this way. iTunes is selling music downloads. They have every right to do so. Who, exactly, do you think should get the money? The labels, iTunes, or the artists?

Currently, only the labels and iTunes get the money - because they're treated like CD's, and we all know most artists don't make a dime from selling CD's. This just gives the artists a stake in the game, and I'm not opposed to that.

The only thing that concerns me is that if the money is shifted to songwriters, it will be shifted away from the recording artists. But because of "label accounting," recording artists usually don't make money from physical sales anyway.

In Eminem's case, he is both the songwriter and the performer, so it's a false dichotomy. Indeed, anyone who writes their own material can only benefit from this ruling.

Write songs and sell that to the public once

You can't sell anything to "the public" once. You can sell to individual members of the public, but that's the business model we have now. Unless you mean accepting one lump sum to put songs in the public domain - but in that case, who would pay? The government?

In practice, "work for hire" songwriters sell their music to their clients. But the clients then own all the rights to the work, regardless of the songwriter's intent. Being businesses, they are generally even less inclined to let others use that work than the songwriter.

So, "work for hire" doesn't end up being any better for the public. It works out very, very well for publishers and labels, however.

This is why I don't put much stock in the "you should only get paid once" argument against royalty payments. This argument doesn't help put works in the public domain, it only puts label interests above the interest of artists. It is one of the (few) times where copyright is justified.

Re: Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

Re: Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

"Some people are excellent songwriters but terrible performers - and vice versa. Both sides of the equation need to be compensated. Could this work under a "work for hire" situation? Maybe, and there are some times when it does (studio artists or backup singers for performers, jingle writing for composers, etc)."

There is compensated and then there is compensated.
Compensated for work done and paid for it, it is all good and well, work compensated for eternity for every use under the sun is not.

"But the music industry is mainly set up as a "spec" system, where nobody gets paid until the music is sold. Blaming songwriters for this is a lot like blaming salesmen because they work on commission."

Every one has a choice, they could make different choices but they don't and they finance groups like ASCAP, RIAA and the MPAA, so no I do believe they are guilty and weather it is by incompetence, apathy or greed it really doesn't matter the end result is the same, trying to take their ass out of the line and blame some imaginary set of rules is not convincing.

"But think of it this way. iTunes is selling music downloads. They have every right to do so. Who, exactly, do you think should get the money? The labels, iTunes, or the artists?"

iTunes. they are the ones creating the market, they are the ones doing the promoting, they are the ones who found a market others should try to emulate them or die trying but not have part of it and that is because I don't like Apple, but I do like less the people who can't make a business work for themselves and need to keep creating rules of what is moral or imoral, what it is just and not and don't want to work for it.

If it was up to me music would have no licenses and everybody could sell it or distribute it or play it in public, artists specially musicians still have other means to make a buck and songwriters would just be paid like reporters, that don't hold copyrights on their writings, maybe reporters should start claiming copyright and ownership on the news would that make sense?

"Currently, only the labels and iTunes get the money - because they're treated like CD's, and we all know most artists don't make a dime from selling CD's. This just gives the artists a stake in the game, and I'm not opposed to that."

Neither the labels nor the artists deserve any money from the work done by others just like artists shouldn't have to pay others when they create something from sources they found in the public space. People try for years to create markets and vultures come in and try to take it away, that is how it works today, and it is a shame.

"You can't sell anything to "the public" once. You can sell to individual members of the public, but that's the business model we have now. Unless you mean accepting one lump sum to put songs in the public domain - but in that case, who would pay? The government?"

Really, people pay once for the song and can do with it what they like?
No that is not what happens people have to keep paying forever and that is not only unsustainable is just ludicrous a bubble of entitlement that some trully believe in, unfortunately they can't defend it, it just doesn't work that way in reality.

"In practice, "work for hire" songwriters sell their music to their clients. But the clients then own all the rights to the work, regardless of the songwriter's intent. Being businesses, they are generally even less inclined to let others use that work than the songwriter."

That it is true about business that is why this was a social failing, we fail to compete with business, but programs like kickstarter, slicethepie and others are remedies to that, is not "work for hire" is the license scheme called copyright that give vasts rights to people who really don't deserve any the so called "copyright holder". I'm ignoring the attempted bill referenced because it would make work for hire a reality but it wouldn't reduce the copyright rights that enable it to be so bad, so I don't see the relevance, work for hire is not a problem. expansive copyright is.

Re: Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

"That's why, in 1999, Mitch Glazier - then a Republican Congressional staff attorney - inserted language into an unrelated bill that made all musical recordings "works for hire." Artists got up in arms, and the law was repealed. Glazier is now Senior Vice President of the RIAA.

This is why I don't put much stock in the "you should only get paid once" argument against royalty payments. This argument doesn't help put works in the public domain, it only puts label interests above the interest of artists. It is one of the (few) times where copyright is justified."

I believe that is not correct, the concept of work for hire is good and could help clear up the mess copyright is, the implementation on the other hand is what kills things.

Re: Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

You do not seem to have an appreciation for song writers, perhaps you should write your own songs. song writters take time to develop a work and if a songs lives on forever , becuase it is a good song, then of course they should recoup royalties. I have been developing song wrtting skills for over five years and im not about to hand them over to some one else to make lots of money form. oh this is to the guy who said song writter should be for hire. well they can if they want to. but im not about to hand over my gold for a few pennies. You have to be kidding.

Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

in the USA, but not in most other countries, iTunes and the record companies agreed that the record companies would cover iTunes mechanical royalty liabilities to publishers for downloads. The problem with this is, publishers didn't agree to waive their right to get paid direct from iTunes.

Isn't this usually the case? That's how it works with physical CD's - the labels pay the mechanical royalties to the publishers/songwriters. It's a bit like saying the publishers didn't agree to waive their right to get paid direct from Tower Records.

Why would you want to have to wait for a record company to receive reports from iTunes and take months or years to turn around and pay you at reduced rates in many cases? That isn't fair.

"Fair" has never been a word in the major labels' vocabulary. Why do publishers agree to that in the case of physical albums?

Don't get me wrong: I'm not complaining. I'm just trying to understand the details.

Re: Re: Re: Re: Why this is a big win for artists as well as songwriters and publishers

Why do publishers agree to that in the case of physical albums?

After some thought, I think I can answer my own question. They agreed to this because otherwise they couldn't sign a label deal at all. And if (like most) they already signed a "deal memo," they had to sign a deal with that label.

Which means that this probably won't effect anyone who signed a label deal in the past five years or so, since label contracts will have already included clauses for digital download royalties. That's a pity.

boy am I confused

Ok I am usually on the side of the artist, but this ruling and the arguments really confuse me. I hope I'm just not understanding it, but is sounds like they are basically now saying that the downloaded purchase of an album for $9.99 on iTunes is no longer considered an album sale, but an act of licensing??

In as much as royalties are calculated, in any case.

Sorry, but I can't even imagine how the sale of a downloaded album is conceptually any different - at least from a financial perspective - from buying a physical CD.

I mean in the simplest termns, the sole REASON I no longer have to go to a record store and buy a CD for $15 is because I can log into iTunes and download it for $10.

Even if they were the same price (and, sadly for iTunes, this is becoming more and more the case), the end result is still the same - I choose to buy a new album either by downloading it or buying a physical CD.

They are BOTH ALBUM SALES, plain and simple, and it seems that any royalties paid should be paid under the guidlines of an album sale.

But this new ruling says the purchase of an album on iTunes is now an act of licensing?

Please explain this to me.

So from now on it's incorrect for me to say "hey, I just bought the new U2 album on iTunes," but rather "hey, I just paid a fee to indefinitely license the new U2 album for personal use only on iTunes?"

hi

iTunes - sale or license?

Perhaps, as an Entertainment attorney, I can shed some light on the discussion over the Eminem case.

The fact is that the case, as with all Court cases, is decided on its facts, and the applicable law.

The law (in the US) states that giving someone permission to do something with your master recording, whilst retaining the rights within it, for periodic payments - based on use - is a "licence".

That is precisely what Aftermath did (Eminem's label), when it LICENSED use of its master recordings (yes, it owns them, not Eminem) to iTunes. It did not, in any way "sell" the master recordings to iTunes.

In Eminem's case, "license" royalties were paid by Aftermath at 50% (whereas sales were paid at 12%). Thus the iTunes royalty should have been paid at 50%. That is what this case was about.

The fact is that iTunes then went on to SELL permanent downloads to consumers. That agreement is between iTunes and the consumer. Neither Eminem nor Aftermath is a party to that sale. Thus they have no involvement with it, nor was it examined in the case.

In any event, there was no "periodic" payment made to iTunes (by the consumer) based on use (which the Court used as evidence of what differentiates a "license" from a "sale") - rather, each download was permanent, for a one time payment, constituting a sale. No matter, because the transaction was between iTunes and the consumer, as stated above - so it was not examined in the Court case. Sure, iTunes used its LICENSE from Aftermath to create a copy of the master recording for onward SALE to the consumer each time, and paid a royalty to Aftermath based on each download (or sale), but that is all.

I am afraid that this is not the radical rethink of the entire music business cash flow for digital products that some people have thought it to be, but rather a specific decision based on the specific language of one contract (between F.B.T and Aftermath).

Of course, some artists (notably those who signed contracts prior to 2003, when iTunes launched) will have similar language in their contracts, and can push their record lable into paying a higher digital royalty as a result, but many (probably most?) will not be so lucky.....